Saturday, May 13, 2017

Bank Stocks Outlook for the week – 15 to 19.05.2017

Bank Stocks Outlook for the week – 15 to 19.05.2017


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Bank Stocks Outlook for the week – 24 to 28.04.2017
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Bank stocks are seen largely down in the coming week as a slew of negative news reports this week is seen weighing on the sector. Stocks of private lenders are seen down on concerns over the divergence in their bad loan numbers as assessed by them vis-a-vis the Reserve Bank of India. Yesterday, YES Bank's shares fell nearly 7% after the lender's annual report for 2016-17 (Apr-Mar) showed that the gap between its assessment of gross bad loans at the end of March 2016 and that of the Reserve Bank of India was 41.77 bln rupees. The sheer difference in divergence is in our view a big red flag and raises concerns on the actual practice of prudence at YES (Bank). This has raised concerns that YES Bank may deliver a negative shock out of such divergences in future. The firm said it will be watching the bank closely, with a high likelihood of a "downside risk" to their earnings estimate. The fall in YES Bank stocks had a spill-over effect on shares of other private sector lenders. Also, several media reports, citing a Credit Suisse report, yesterday said such high divergences are seen in financials of other private banks such as ICICI Bank and Axis Bank as well. Stocks of ICICI Bank ended down 1.2%, while those of Axis Bank fell 2.7%. On the other hand, high capital requirements amidst piling bad loans, which have triggered prompt corrective action by the RBI in two small public sector banks, is seen weighing on the sector. On May 9, citing a high net non-performing asset ratio and negative return on assets, RBI initiated prompt corrective action on IDBI Bank, which would mean greater regulatory scrutiny on the bank's business and its use of capital. After IDBI Bank became the first lender to face such action after the RBI imposed more stringent criteria in this regard on Apr 13, UCO Bank yesterday reported that the central bank had also initiated prompt corrective action for it. At the time of notification of the norms, RBI had said that in addition to higher scrutiny, merger and consolidation of poor performing banks might also be an option to bring the asset quality issue under control. While these concerns persist, we believes that given the fact that the Nifty Bank index touched a new lifetime high of 23000 this week before the negative news flow came in, buying in banking stocks should continue in the next week as the underlying sentiment remains strong. Jan-Mar earnings of banks will also lend cues to the market. Central Bank of India, Karnataka Bank and Jammu & Kashmir Bank are scheduled to detail their Jan-Mar earnings on Saturday, whereas South Indian Bank, Andhra Bank, Punjab National Bank, Dhanlaxmi Bank, Punjab & Sind Bank, Karur Vysya Bank and Bank of Baroda will detail their results next week.

Source : Cogencis Information Services Ltd.